Like it or not, you’re CFO of your household and you can apply some basic corporate principles to help you improve your financial position.
Ever wondered what it would be like to control millions (or even billions) of dollars? For chief financial officers, it’s an everyday reality. The financial controllers of large companies spend their days reviewing income and expenses, working on profit improvement projects, approving expenses, and making tough calls when it comes to company capital.
If this sounds stressful to you, it may be because you can’t relate on a personal level. For most people, the household budget is the biggest budget they’ll ever manage – and they simply don’t think of running the household like a company.
You may not realise it, but you’re the de facto CFO of your household. You’re responsible and accountable for what happens with your family finances. The good news is that you can learn from professional CFOs. By applying a few basic principles, you’ll be able to improve your financial position and reduce your money stress.
You wouldn’t start a house extension or renovation without a plan and a budget, so why take a laissez-faire approach to your general finances?
It may be because, when you get paid and have expenses paid at a certain frequency (weekly, fortnightly or monthly), it’s hard to see the bigger picture. Try projecting out your household budget to one year, or even five years. This will help you see how small changes in the short term can eventually make a big difference.
Calculate your net worth
When you can put a number on your net worth, you’re in a better position to make tough decisions about what you can and can’t afford.
Audit your costs
It’s important to keep an eagle eye on your household expenses. The first step is actually knowing what you’re spending.
Review your credit/debit card statement on a regular basis. If you find you’re spending a lot of cash and don’t have much to show for it, try keeping a spending diary. For each expense, ask yourself whether it’s a need or a want.
Slash your overheads
In business, an overhead is an expense which isn’t directly related to income. Overheads are also known as operating expenses. Your household’s overheads include groceries, your mortgage interest or rent payments, and utility bills.
To cut your overheads, start with the biggest item and work down your list. For example, you might begin with your mortgage arrangements. Ask yourself whether you’re really getting the best deal on the market.
Then, take a look at your electricity, gas, phone, internet, etc. There’s so much competition amongst suppliers, it really does pay to shop around.
Boost your cashflow
Do you have bad habits when it comes to spending?
Perhaps you buy snacks and coffee on a daily basis, splurge on treats when you’re feeling bad, or spend money on the kids to keep them quiet?
If you really want to be CFO of your household, imagine that everything you spent money on was going to be analysed and assessed by the board or shareholders. Would yours be up to scratch?
Just remember – not spending is a habit you can establish too. The easiest way is to turn it in to a game. Try downloading one of the many money apps designed to help you visualise your goals and make saving fun.
Remember to set rewards for yourself when you hit targets – like your own personal bonus program.
Tax planning is an important part of boosting your financial position in the long run. It’s especially important if you run a business, have a family trust, or have significant investments, including property.
But you can save on tax in a number of other ways, such as salary sacrificing in to your super. Take note though – it’s important to get professional advice on tax matters, so talk to a financial planner to see what’s best for you.
This is an edited version of an article that originally appeared on RP Wealth Management and is republished here with permission. This article contains general information only. This should not be relied on as independent finance or tax advice. If you are after specific professional advice, speak to your registered tax agent/financial advisor or reach out to the team at RP Wealth Management.